from the get-out-of-court dept

A few weeks ago, we wrote about influential appeals court Judge Richard Posner, who was slumming it down in a district court for fun (appeals court judges do that sometimes) and gave a brief statement about his plans to dismiss a major patent lawsuit between Apple and Motorola Mobility (now owned by Google). The patent dispute was over smartphones, so given the Google/Apple battle, it was seen as a fight over whether or not Apple's iPhone-related patents might stop Android. After Posner initial announcement, Apple sought a further chance to convince Posner he was wrong, leading to a followup. However, late last week, Posner came out with his full ruling (embedded below) and it's pretty devastating.

The ruling itself is a bit technical, but basically, the companies did a horrible job trying to show any "damages," so Posner noted that the evidence on damages was inadmissable, but without that, what kind of case is there? Apple then tried to claim that they should be able to get "nominal damages," which is basically a tiny (meaningless) sum of money because there was no clear actual damages (or any statutory damages), but a "wrong" was still committed. In other words, Apple really really badly just wanted the court to say that Motorola infringed, even if it meant getting a dollar for it. Posner, while noting that there can be nominal damages awarded by a judge, it makes absolutely no sense to sue for nominal damages -- and thus chastised Apple:

It’s not as if nominal damages were compensation for a nominal
harm. They are a symbolic recognition of a wrong that produced
no harm, though it may have infringed a right. You can’t
go into federal court and say you had a contract with X and X
broke it and you’re really annoyed even though you sustained
no injury of any sort (in fact you made money because you're
contracted at a higher price) so please give me a judgment for $1
that I can pin on my wall.

Motorola, for its part, doesn't get off easy either. Its own damages expert (on its counterclaim) made some outrageous claims that Posner calls out as well, including a ridiculous claim that a single patent taking out of a much larger portfolio could get a license of "up to" 40 or 50% of the entire portfolio. Posner mocks the use of "up to" noting that it "covers a lot of ground." Then, Motorola's "expert" tries to change his story, claiming at least 40 to 50%. Posner notes that this is just as vague, but now vague on the upside, rather than down, and then chides the expert for giving no actual basis for this estimate, before bringing it back around to the obvious real reason for the crazy damages estimate:

“Going for broke” is the inescapable characterization of
Motorola’s damages claim. Motorola claims to be entitled to a
minimum royalty of 2.25 percent for a license for the patents in
the portfolio that contains the ‘898. Though it’s the only patent
in the portfolio that remains in this suit, Motorola claims to be
entitled to damages equal to (or “up to,” or “at least”—it seems
not to have made up its mind) 40 to 50 percent of 2.25 percent,
which would be 0.9 to 1.125 percent of sales of Apple devices
that infringe the ‘898.

Finally, with both sets of damages requests dismissed, there's the question of injunctive relief (blocking each other from making the product). There again, Posner finds the whole thing to be a waste of time. He goes back to the fact that both companies totally failed in putting forth reasonable damages claims, saying that it's not that it's impossible to do so, just that these companies went too far:

The problem
is not that damages cannot be calculated, but that on the eve of
trial, with the record closed, it became apparent that the parties
had failed to make a responsible calculation.

He goes on to mock Apple's claim that it was losing marketshare to Motorola, noting that even if he granted an injunction, it would be so easy to change Motorola's smartphones to avoid infringement that it would have no impact on Apple's dwindling smartphone marketshare. He also points out that the "value" of most tech patents are really to be used defensively, rather than offensively, and suggests that it's silly to be fighting over such small pieces of the smartphone ecosystem. Basically, letting either party win is pointless, saying it would create a "windfall" for the other side.

Continuing in this vein, Posner again mocks Apple's claim that its brand recognition and goodwill suffered from this competition, relying on a case that focused on a small company that faced such troubles. Posner notes the ridiculousness of Apple using a ruling designed to protect a small company here:

Apple is not a “small company”; its market
capitalization exceeds that of Google and Microsoft combined.
To suggest that it has suffered loss of market share, brand
recognition, or customer goodwill as a result of Motorola’s alleged
infringement of the patent claims still in play in this case
is wild conjecture.

And then notes that Apple seemed to want to turn this into a show trial about how people love the iPhone:

In its latest written and oral submissions Apple attempts
what I told its legal team at a pretrial conference I would not let
it do in the liability trials then envisaged: turn the case into an
Apple versus Motorola popularity contest. Apple wanted me to
allow into evidence media reports attesting to what a terrific
product the iPhone is. I said I would not permit this because the
quality of the iPhone (and of related Apple products, primarily
the iPad) and consumers’ regard for it have, so far as the record
shows, nothing to do with the handful of patent claims that I
had ruled presented triable issues of infringement. Apple’s “feel
good” theory does not indicate that infringement of these claims
(if they were infringed) reduced Apple’s sales or market share,
or impaired consumer goodwill toward Apple products.

As Posner notes, Apple may have suffered harm from having to compete against Motorola, but that "harm is a perfectly legal one" unrelated to the specific patents in question.

The notion that these minor-seeming infringements have
cost Apple market share and consumer goodwill is implausible,
has virtually no support in the record, and so fails to indicate
that the benefits to Apple from an injunction would exceed the
costs to Motorola. An injunction that imposes greater costs on
the defendant than it confers benefits on the plaintiff reduces net social welfare.

In the end, he dismisses the case with prejudice (so they can't just refile it), arguing that to do otherwise would just give the companies a second shot at trying again to prove damages.

i think that, like so many other companies, ApPle needs to think back a while and see not just what but also how it actually achieved everything that it has. Jobs may well have been a very clever man but he, nor his staff, came up with every idea that has been incorporated or used in it's products. without the innovations that came before, half of what Apple now does would not have been possible but i bet it didn't give a shit about who it stole what from nor whether the person(s) concerned deserved or were paid! it's the same old story. what's mine is mine and you cant have it. what's yours is yours until such time as i want it and i AM gonna use it, for free, whether you like it or not!

A few interesting things about this decision...

1. Posner is sitting by designation. He told district court Judge Crabb that he's interested in taking patent cases she doesn't want.

2. The case boils down to a failure of evidence of damages.

3. The failure of evidence is because Posner struck the expert testimony of damages.

4. In nearly circular reasoning, Posner did not award an injunction because: a. Apple couldn't show damages, b. injunctions are generally only available where remedies at law (like damages) are insufficient, c. because they couldn't prove damages, they don't get an injunction.

5. In one place Posner says that designing around the patents wouldn't be difficult, but that there would be great cost to Motorola if it had to do so now -- which is really a breath of fresh air.

Posner is a smart judge. He clearly sees something amiss in how patent cases are being handled.

I'll note that before the Fed. Cir. was established to unify patent cases, each district (e.g., 1st, 2nd, etc.) would appeal to their own federal court of appeals. That would result in circuit splits and a robust set of patent case law. Posner is a 7th Circuit court of appeals judge. This could be essentially a judicial "hack" that could "force" the federal circuit to take up more nuanced reasoning on things like patent damages.

This is a good opportunity to go back and look for the pro-apple comments on old articles about how apple is so special and unique and it's obvious that motorla/google were going to have their asses handed to them.

"Going for Broke"

This is really the bit I have the most trouble with regarding this ruling.

Judge Posner's argument appears to be that since only 1 patent out of the portfolio was infringed, damages should be calculated linearly according to the portfolio size and the portfolio licensing rate.

The problem I have with this is that such logic is used nowhere else in our entire economy. Does a 16 oz drink cost half as much as a 32 oz drink? Does one pound of ground beef cost 1/5th as much as five pounds of ground beef?

Here's another example. If I go on Steam and I purchase Half-Life 2; Half-Life 2:Episode 1; Half-Life 2: Episode Two; Team Fortress 2 individually, I would pay $35.96. However, if I buy the Orange Box, it's $19.99. One important thing to note is that Half-Life 2, by itself, is $9.99 - or 50% of the Orange Box bundle's cost, despite being just one game.

Buying things in bulk or bundles for less than the sum of their constituent parts is a purely rational and capitalistic way of doing business and it has been this way for generations. While I don't like how Moto's expert waffled back and forth (up to, and then at least), the idea that the costs should scale linearly with the size of the patent portfolio is absurd on its face.

Re: Re: Re: So Much For Innovation

Re: "Going for Broke"

Linear calculation is fair. You may have a point in this particular instance, but your reasoning falls apart if you consider another case:

Let's say only one patent WASN'T infringed. How much should it be then - whatever individual rate you want to apply, multiplied by (n-1)? If the individual rate is "non-discounted", this has the potential to be absurd if the total worth exceeds that of the portfolio.

Yes, you have a point in that if you attempt to "back-calculate" the price of an individual title from the bundle, you would arrive at an erroneous conclusion - Half-Life 2 does indeed individually sell for more than its percentage contribution to the bundle. So which is correct, if we are using a portion of the whole? Should we add up the worth of each individual patent, even if this is worth more than the portfolio? Should we attempt to back-calculate value from the portfolio's worth as a whole, even if the value doesn't agree with your perception of a patent's worth?

To say that backwards calculation of the price of an individual title should be anything above linear interpolation is to place additional burden on the court and make the matter entirely subjective. What if all I really cared about was Team Fortress 2? Maybe I'd be okay if its contribution to the bundle was $12.99 (pre-F2P). Maybe I like Half-Life 2 better, and that should be $12.99 out of the bundle? Similarly, the 'importance' of an individual patent out of the portfolio can, I'm sure, be argued by several different metrics - the cost of a work-around, the amount invested in securing the patent, etc., etc. Because it can be argued several ways, it shouldn't. A linear interpolation is a fair assumption.

Re: Re: "Going for Broke"

Let's say only one patent WASN'T infringed. How much should it be then - whatever individual rate you want to apply, multiplied by (n-1)? If the individual rate is "non-discounted", this has the potential to be absurd if the total worth exceeds that of the portfolio.

Listen to yourself for a second. If I think linear calculation for an individual patent is insane, why wouldn't I also think that a linear calculation for many patents based on an individual patent's cost is insane? Because that's what you're ultimately doing - selecting the value of "just one patent" and then linearly applying it to the quantity in the portfolio. My entire argument from the get-go is that linearly interpolating the prices is fail.

Let's assume Moto was asking for 50% of the portfolio price to license just one patent from the portfolio which is licensed for 2.25%. This means Moto wants 1.125% for the one patent. If there were one hundred patents in the portfolio, that would be 112.5% to license them all - clearly absurd. The obvious answer is no licensing scheme should ever exceed the 2.25% that it costs for the whole portfolio.

And mind you this is just for LICENSING. Perhaps it's a bad idea to calculate damages based on how much it would cost to license the patents, because of the burden it may place on the court.

But that doesn't mean that you can say "hey, HL2 represents 20% of the Orange Box Bundle, and 20% of the bundle's cost is $7.20, so if I get caught pirating HL2 then I should only be on the hook for $7.20 and not the $9.99 that the game costs by itself".

Re: Re: Re: "Going for Broke"

Let's assume Moto was asking for 50% of the portfolio price to license just one patent from the portfolio which is licensed for 2.25%. This means Moto wants 1.125% for the one patent. If there were one hundred patents in the portfolio, that would be 112.5% to license them all - clearly absurd.

Or it means that other patents would differ in their pricing. The problem is - how are you going to decide what patents are worth? We seem to agree you can't pin it on the courts, so what other way than to linearly interpolate from the bundled price, if no individual licensing price exists?

good for Posner

Not to condone potential patent infringement on the part of Motorola or any other company, but my response is: good for Posner. The mobile patent wars are out of control. Most of these disputes belong in the marketplace, and should be resolved there, rather than wasting scarce court resources by using them as a proxy for market competition.